This article first appeared in Digital Edge, The Edge Malaysia Weekly on August 8, 2022 - August 14, 2022

With its wide reach to gig economy workers, merchants and consumers, the consortium led by Grab Holdings Ltd and Singtel — named GXS Bank Pte Ltd — can be said to already have a captive market for its upcoming digital bank in Malaysia. The joint venture counts Kuok Brothers Sdn Bhd as its investor.

According to the company’s 2021 ESG Report, which covers its operations across the region, more than 680,000 small merchant partners joined Grab in 2021. It also had over four million merchant partners and GrabKios agents registered on its platform last year.

Grab provides microloans and microinsurance to driver-partners and consumers in six of its eight markets. Based on data from its website, Grab has facilitated more than 130 million microinsurance transactions since April 2019. Over 60% of its working capital loans issued in 2021 were to small merchants who find it challenging to secure loans from conventional financial institutions.

As a super-app, Grab has a substantial number of users on its food delivery, grocery shopping and ride hailing platforms. The company’s latest financial report, published May 19, shows its monthly transacting users (MTU) for the first quarter at 30.9 million.

Grab’s e-wallet market share could also give it a leg up against its competitors, according to a Maybank research report in May. In fact, a 2021 research report by London-based fintech firm Boku claimed that GrabPay has the largest mobile wallet market share in Malaysia. This finding was derived in collaboration with its partner, Juniper Research, which develops market forecasts and consumer surveys.

Another advantage that Grab’s consortium has is the potential for infrastructure sharing across the Causeway, according to several research firms. The consortium was also selected to set up a digital bank in Singapore in December 2020. According to reports, it is aiming for the Singapore digital bank to be launched in the second half of 2022.

“We will leverage the consortium’s combined strengths, including our technology expertise, data from highly-engaged consumers using everyday services, experience providing financial services across Southeast Asia and deep understanding of the Malaysian market to redefine the banking experience for underbanked Malaysians and improve their economic outcomes,” said Reuben Lai, senior managing director of Grab Financial Group and board member of the regional digibank joint venture in a press release.

Lai Pei Si, who has 25 years of experience in retail banking, wealth management, corporate finance, product and business management, has been appointed as the CEO-designate for the digital bank. She was most recently the managing director and country head for consumer, private and business banking for Standard Chartered Bhd in Malaysia.

According to several sources who spoke to The Edge in June 2022, the consortium is seeking industry veterans to be part of its board. Potential candidates include the former chairman of Bank Pembangunan Malaysia Bhd Datuk Zaiton Mohd Hassan and veteran investment banker Datuk Maimoonah Hussain.

The consortium led by Sea Ltd and YTL Digital Capital has a diverse set of capabilities and experience ranging from financial services and e-commerce to hospitality. Sea also has huge ambitions in digital banking, as it has received approvals to operate digital banks in the Philippines and Brazil.

Sea is best known as the owner of Shopee. But the company actually operates in three core business areas: digital entertainment (Garena), e-commerce (Shopee), and digital payments and financial services (SeaMoney). Garena is a global online games developer and publisher, while Shopee is the largest pan-regional e-commerce platform in Southeast Asia and Taiwan, according to its website.

SeaMoney, which operates in seven Southeast Asian countries and Taiwan, provides e-wallet services through ShopeePay, consumer financing through SPayLater, and seller financing through SPinjam and DanaCepat. These services are available in Malaysia. In Indonesia, it already operates a digital bank called SeaBank.

Clearly, the consortium can leverage on Sea’s data, technology capabilities and experience in managing transactions through Shopee and SeaMoney. A Kenanga research report in May highlights how lending and deposit facilities could be integrated into the Shopee app, which would allow for high ease of access and penetration to existing Shopee users.

According to Sea’s latest quarterly report ended March 31, 2022, Shopee ranked first in the shopping category by average monthly active users in Southeast Asia and Taiwan, based on information from data.ai, a data app analytics solutions company. Meanwhile, quarterly active users across SeaMoney products and services reached 49 million. Total payment volume for the e-wallet was US$5.1 billion (RM22.7 billion) across the countries where it operates.

These strengths were viewed positively by RAM Ratings in a report in May. The ratings agency also noted that while YTL is unlikely to contribute as much to the joint venture, YTL’s YES mobile customer base could drive longer-term mass uptake.

The Maybank research team is also optimistic about the consortium’s prospects because it has strong e-wallet propositions, which can become a gateway for the adoption of new digital financial services. The cost of acquiring or upselling customers is also lower.

The only investment bank on the list of digital bank licence awardees is KAF Investment Bank, which was awarded the licence to run an Islamic digital bank.

KAF is not new to the financial industry. Since 1975, the company has been offering investment banking, Islamic banking, fund management and stockbroking services, among others. It ventured into fintech in 2021 when it invested in MoneyMatch, a start-up focused on remittances for individuals and small and medium-sized enterprises.

MoneyMatch is not the only start-up in KAF’s consortium. According to the bank’s press release, car e-commerce platform Carsome and Jirnexu, which owns financial products comparison website RinggitPlus, are onboard as well. All three start-ups are based in Malaysia and considered well known in the market. Carsome, for instance, is the first unicorn from Malaysia.

Adding to the tech-heavy focus is the appointment of Rafiza Ghazali as the CEO-designate for the Islamic digital bank. Rafiza is the former group CEO of Cradle Fund, which has been instrumental in growing many tech start-ups in Malaysia.

Clearly, KAF will have the assistance and experience of prominent Malaysian fintech start-ups to set up the digital bank. It could potentially tap on these start-ups’ customer base as well.

According to its website, Carsome is the largest integrated car e-commerce platform in Southeast Asia and is currently in four countries. It has more than 8,000 dealers and transacts more than 100,000 cars on an annualised basis.

Meanwhile, MoneyMatch has executed over RM2.5 billion in transactions through cross-border trade payments and individual remittances, based on data from its website. It has more than 28,000 registered users.

Jirnexu enables banks, insurance companies and service providers to generate leads online and manage customers. Its financial comparison website allows consumers to find the best banking or insurance product. Now, the website also has information on credit cards, loans, internet services and so on. The company runs the service in Indonesia under KreditGoGo.

“The digital banking licence would further enable KAF to deploy robust digital strategies with our partners for a wider financial inclusion through multi-channel deliveries. A significant amount of effort is being put into modernising the banking industry. Banks can no longer rely on outdated business models of operation and must now seek new and innovative ways of reaching out to the underserved segments, while at the same time increasing the accessibility, value and affordability of financial services without compromising the security of the customer’s personal data,” said Thariq Usman Ahmad, deputy CEO of KAF Investment Bank in a press release.

Not surprisingly, KAF is seen as an outlier among the successful digital bank bidders, according to Kenanga Research. This is because the bank lacks a firm presence in this area compared to its competitors. It doesn’t have an existing captive audience and may need to do more in customer acquisition.

However, the research firm also notes that KAF is a matured financial institution, so it would not have any complications in securing partners to roll out the Islamic digital bank.

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